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General Principles: Donor’s Tax General Principles: Donor’s Tax

Transfers for insufficient consideration Cancellation of indebtedness
Where property, other than real property referred to in Section 24(D), is • If a creditor desires to benefit a debtor, and without any
transferred for less than an adequate and full consideration in money or consideration therefore, cancels the debt (and the debtor
money’s worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of “accepts”), the amount of the debt is a donation by the
the tax imposed by this Chapter, be deemed a gift, and shall be included in creditor to the debtor. (See Tax Made Less Taxing at 312 citing
computing the amount of gifts made during the calendar year: Provided, R.R. No. 2-1940)
however, That a sale, exchange, or other transfer of property made in the
ordinary course of business
• (a transaction which is a bona fide,
• at arm’s length, and
• free from any donative intent),
will be considered as made for an adequate and full consideration in money
or money’s worth.
(NIRC, Sec. 100)

General Principles: Donor’s Tax

Transfers for insufficient consideration
• Sec. 100 applies to transfers of property other than those
covered by 24(D) (real property located in the Philippines,
classified as Capital Asset). Determination of Net Gift
Implications:
• If the property transferred for insufficient consideration is a real property
classified as Capital Asset, the transfer will be subject to CGT of 6% (base
is whichever is higher of FMV or consideration);
• If the property transferred for insufficient consideration is an Ordinary
Asset,
– Income tax will be imposed (on the difference between acquisition
cost and consideration); and
– Donor’s tax will be imposed (on the difference between the FMV and
the consideration)

General Principles: Donor’s Tax Determination of Net Gift

The term ‘capital assets’ means property held by the taxpayer Kinds of Donors
(whether or not connected with his trade or business), but does Resident or Citizen of the Nonresident, not a citizen of the
not include: Philippines Philippines
• Stock in trade of a taxpayer or other real property of a kind which would
properly be included in the inventory of the taxpayer if on hand at the 1. Real estate, regardless of 1. Real estate located in the
close of the taxable year; or location Philippines
• Real property held by the taxpayer primarily for sale to customers in the 2. Tangible personal property, 2. Tangible personal property
ordinary course of his trade or business; or regardless of location located in the Philippines
• Real property used in trade or business (i.e., buildings and/or 3. Intangible personal property, 3. Intangible personal property
improvements) of a character which is subject to the allowance for regardless of location located in the Philippines
depreciation provided for under Sec. 34(F) of the Code; or (Subject to special rule on
• Real property used in trade or business of the taxpayer. reciprocity)
(See NIRC, Sec. 39[A][1])
(See NIRC, Sec. 104)

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Determination of Net Gift Determination of Net Gift

Exemptions allowed Other deductions
Resident or Citizen Donor • Encumbrance on the property donated, if assumed by the
a. Gifts made to or for the use of the National Government or any entity created by donee
any of its agencies which is not conducted for profit;
– E.g. Mr. Donor donates real property to Mr. Donee, on the condition
b. Gifts in favor of an educational and/or charitable and/or religious corporation,
institution, foundation, trust or philanthropic organization or research institution that Mr.Donee assumes the mortgage upon the property. The
or organization: remaining balance unpaid may be deducted.
• provided, however, that not more than 30% of said gifts shall be used by such • Those specifically provided by the donor as a diminution of
donees for administration purposes the property donated.
• the entity must be
– E.g. Mr. Donor donates real property to Mr. Donee, on the condition
o non-stock;
that Mr. Donee will donate ¼ of the property to the government. The
o paying no dividends;
value of the portion by which the property donated is diminished may
o governed by trustees who receive NO compensation; and be deducted.
o Devoting ALL of its income to the accomplishment of the purpose
enumerated in its AOI.
(See NIRC, Sec. 101[A])

Determination Net Gift Determination of Net Gift

Exemptions allowed
Non-resident not a Citizen of the Philippines
a. Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit, or to any political subdivision
of the said Government.
b. Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for administration
purposes.
(See NIRC, Sec. 101[B])
Exemptions under special laws
• Gifts and donations of real and personal properties of all
kinds (to the University of the Philippines) shall be exempt
from the donor's tax ***. (RA 9500, Sec. 25[b]; see also PD
1434 [Isabela State University], Sec. 6[c])
• Contributions to the (National Book Trust) Fund shall be
exempt from the donor's tax (RA 9521, Sec. 3[f])
• Donations to qualified foster care agencies are exempt from
donor’s tax (RA 10165, Sec. 24[b])

Determination of Net Gift Determination of Net Gift

Gifts by husband and wife Exemptions under special laws
• The husband and wife a considered separate and distinct • Any provision of law to the contrary notwithstanding, any
taxpayers for purposes of the donor’s tax. contribution in cash or in kind to any candidate or political
• For deductions from gross gifts made by husband and wife, party or coalition of parties for campaign purposes, duly
out of community/conjugal property, each donor has his or reported to the Commission shall not be subject to the
her own deductions. Their donations will be distributed payment of any gift tax. (RA 7166, Section 13)
among them.
• If what was donated is a conjugal/community property and
only one signed the deed of donation, there is only one donor
for tax purposes, without prejudice to the right of the other to
question the validity of the donation without the latter’s
consent.
(See RR12-2018, Sec. 14)

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Determination of Gross Gift

Determination of Net Gift
and Net Gift
Exemptions under special laws Computation of donor’s tax
• Note that as long as the contributions are utilized for the • Done on a cumulative basis, over a period of 1 year
campaign and are duly reported, no income tax is also • The PhP250,000.00 is considered a “deduction” from the total
imposed. gifts, as the 6% donor’s tax is imposed on the excess to the
PhP250,000.00.
– Unutilized/excess campaign funds, net of the candidate’s
or political party’s/party list’s campaign expenditures, shall
be considered as subject to income tax and as such, must
be included in their/his taxable income as stated in
their/his Income Tax Return (ITR). (See BIR RMC 31-2019)
• Donations utilized before or after the campaign period
are subject to donor’s tax and not deductible as political
contribution on the part of the donor

Determination of Gross Gift

Determination of Net Gift
and Net Gift
Exemptions under special laws Computation of donor’s tax
Illustration: Mr. Donor On the first donation:
• Candidates are required to file their Statements of Gross Gifts
donates multiple times
Contributions and Expenditures (SOCE) within 30 days Less: Deductions from this gross gift______
in a calendar year = Net Gift
after election day. In case of failure to comply, the entire x Donor’s Tax Rate (6%)_____________
amount will be considered taxable income. (RA 7166, = Donor’s tax due on the net gifts
On a subsequent donation (in the same year)
Section 14) Gross Gift on date (subsequent donation)
Less Deductions from this gross gift______
= Net Gift on date
Plus Net Gift (from prior donation/s)_____
= Aggregate net gift
x Donor’s Tax Rate (6%)
= Donor’s Tax on Aggregate net gift
Less Donor’s Tax on prior net gifts_______
= Donor’s Tax due on the net gifts of this date

Determination of Net Gift

Taxable Rates Payable
The tax for each calendar year shall be six percent (6%)
computed on the basis of the total gifts in excess of Two
hundred fifty thousand pesos (PhP250,000) exempt gift made Filing of Return and Payment
during the calendar year. (NIRC, Sec. 99[A])

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Filing of Return and Payment Filing of Return and Payment

Who is required to file a return?
• Any person making a donation (whether
direct or indirect), unless the dontion is
specifically exempt under the NIRC or other
special laws, for every donation, to accomplish
under oath tax return. (See NIRC, Sec. 103(A);
BIR RR 12-2018, Sec. 15)
Notice of donation by a donor engaged in business
• In order to be exempt from donor’s tax and claim full
deduction of the donation give to qualified–donee
institutions duly accredited, the donor engaged in business
shall give a notice of donation on every donation worth at
least PhP50,000.00 to the RDO having jurisdiction of its
place of business within 30 days after receipt of the
qualified donee insitution’s duly issued Certificate of
Donation, which shall be attached to the Notice of
Donation, stating that not more than 30% of the
donation/gift shall be used for administration purposes (BIR
RR 12-2018, Sec. 15[C])
• Where husband and wife donate, the return of the husband
is separate from that of the wife.

Filing of Return and Payment Filing of Return and Payment

What are the contents of the Donor’s Tax Return? When must the estate tax due be paid?
1. Each gift made during the calendar year which is
to be included in gifts; • The tax is paid at the time the return is filed
2. The deductions claimed and allowable; (same with Estate tax). (BIR RR 12-2018, Sec.
3. Any previous net gifts made during the same 15)
calendar year;
4. The name of the donee;
5. Such further information as the Commissioner
may require. (See NIRC, Sec. 103(A); BIR RR 12-
2018, Sec. 15)

Filing of Return and Payment

When and where must the return be filed?
• The donor’s tax return must be filed within 30 days from the date
of the donation. On all donations of one date, only one return is
required. (See NIRC, Sec. 103(B); BIR RR 12-2018, Sec. 15)
• The return is filed with an AAB, RDO and RCO having jurisdiction
over the place where the donor is domiciled at the time of the
Tax Credit
transfer, or if there be no legal residence in the Philippines, with the
Office of the Commissioner. In case of gifts made by a non-
resident, the return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of the
transfer, or directly with the Office of the Commissioner (RDO 39-
South QC now) (BIR RR 12-2018, Sec. 15)
• Where husband and wife donate, the return of the husband is
separate from that of the wife.

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Tax Credit (Donor’s Tax)

• Applicable only to resident or citizen donors
(because they are taxed on a worldwide basis)
(See NIRC, Sec. 101[C][1])
• Similar to Estate Tax, limitation is whichever is
lower of limit a and b

Tax Credit (Donor’s Tax)

Limit a
The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax
against which such credit is taken, which the net gifts
situated within such country taxable under this Title
bears to his entire net gifts (See NIRC, Sec. 101[C][2][a])

Net Gifts,
Tax Credit foreign country Philippine
Limit = Net Gifts,
X
Donor’s Tax
World

Tax Credit (Donor’s Tax)

Limit b
The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken,
which the donor’s net gifts situated outside the
Philippines taxable under this Title bears to his entire
net gifts. (See NIRC, Sec. 101[C][2][b])

Net Gifts,
Tax Credit Outside of the Ph X Philippine
Limit = Donor’s Tax
Net Gifts, world

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